The earnings underperformance was due to year-over-year declines of 50% and 74.1% in the Pennsylvania Regulated and Supply segments’ earnings, respectively. These were partially offset by the 33.3% year-over-year rise in the Kentucky Regulated segment’s earnings and a 3.6% yearly increase in the earnings of the U.K. Regulated segment.

GAAP earnings during the quarter were 60 cents versus 78 cents in the year-ago quarter. The difference between GAAP and pro forma earnings of 11 cents were due to a gain of 2 cents related to adjusted energy-related economic activity and another 13 cents gain from line loss adjustments; partially offset by a penny’s loss from foreign currency-related economic hedges and 3 cents charge from asset impairment.

Yearly GAAP earnings per share were $2.60 compared with $2.70 a year-ago. The variance between GAAP and pro forma earnings was due to a one-time gain of 18 cents.

Revenue

The company reported fourth quarter total revenue of $3.2 billion, beating the Zacks Consensus Estimate by $0.76 billion. However, quarterly revenue decreased 23.6% year over year due to lower realized and unrealized wholesale energy marketing revenues.

PPL Corp.’s full-year 2012 total revenue was $12.3 billion, 8.6% higher than the Zacks Consensus Estimate. But, reported revenue was down 3.5% from the year-ago figure.

Operational Update

Operating expenses in the reported quarter were $2.4 billion versus $3.3 billion in the year-ago quarter.

In the quarter under review, operating income was $0.8 billion compared with $0.9 billion a year-ago.

Interest expenses for this quarter were $247 million, up 21.4% year over year due to the higher debt level.

Financial Update

As of Dec 31, 2012, the company had cash and cash equivalents of $0.9 billion versus $1.2 billion as of Dec 31, 2011.

Long-term debt at the year-end was $18.7 billion compared with $18 billion at the end of 2011.

PPL Corp. projected full-year 2013 earnings in the range of $2.25 - $2.50 per share. The company expects 85% of the earnings to be generated from its regulated business, up from a 72% contribution in 2012.

Earnings in 2013 are expected to decline from the 2012 level due to lower energy margins from the company’s supply businesses and planned outage at the Susquehanna nuclear power plant in Pennsylvania; partially offset by higher revenue from its 3 regulated businesses.

Our View

We appreciate the initiatives taken by PPL Corp. to augment shareholder value by increasing the quarterly dividend. The company decided to hike the quarterly dividend by 2.1% year over year to 36.75 cents, payable on Apr 1, 2013, to shareowners of record as of Mar 8, 2013.

We view PPL Corp. as an organization with a well diversified asset portfolio with strong business models, which are adaptable to a wide range of market coverage. In addition, the company expects to achieve a stable, long-term growth from its regulated electricity delivery businesses through electric and gas base rate hikes in its Kentucky Regulated segment, improvement in operational efficiency and a strong customer-base.

However, we are concerned about the impacts of stringent regulations, and risks associated with delay and cancellation of several important projects, which may to some extent mitigate the company’s future growth.

PPL Corp. currently has a Zacks Rank #3 (Hold).

Allentown, Pennsylvania-based PPL Corp. generates and delivers electricity and natural gas to more than 10 million customers in the U.S. and UK. Other players from the sector – Ameren Corporation (AEE), TransAlta Corporation (TAC) and The AES Corporation (AES) – have yet to announce their quarterly results.